US annual inflation declines to 7.1% in November vs. 7.3% expected • Hacker News Board

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#141

Post by nostrademons » Tue, Dec 13, 2022, 8:49 PM UTC

theptip wrote: post #100

nostrademons wrote: post #59

Earlier quoted context omitted.

The MoM numbers are important, but the breakdown is also important. The breakdown is worrisome - MoM declines were almost entirely driven by gas and other oil-related commodities, and we're still seeing very significant inflation in food (0.5% MoM) and shelter (0.6% MoM). Food and energy are transient (prices can go down as easily as they go up), but shelter and wages are sticky (they very rarely go down, and usually…

Great detail, thanks. Any suggestions for further analysis/reading on the 70s recessionary environment? Didn’t you have the black swan of the US going off the Gold Standard as a major inflationary driver at that time? Is there a similar looming inflationary pressure you see now? My (limited) model is we’re seeing some supply-side disruptions and a some hot demand from Covid stimulus, but it’s not clear to me if these…

My favorite paper on the subject is:

https://www.nber.org/system/files/chapters/c11462/c11462.pdf

I'd also encourage you to look at actual numeric data from the time period - measured CPI [1] across different categories, fed funds rate [2], money supply, etc.

The data tells a very different story from the story - for one, it was neither caused by oil shocks, nor limited to the 1970s. It actually started in 1968, and the 1973 oil shock happened when the U.S. was already in recession from a Fed tightening that began in 1972 to deal with 1970's high inflation. Personally I'd attribute the cause as a series of poor decisions that were papered away by low interest rates, but which eventually compounded to devalue the currency. Vietnam took many young Americans out of the workforce and redirected production to war, Nixon pressured his Fed chief to lower interest rates, Nixon took us off the gold standard, Nixon introduced price controls (which further compounded supply issues), the oil shock hit, banks raised interest rates to compensate for inflation, which raised the cost of housing, which caused more inflation, until Volcker finally caused a massive recession and got it under control.

Note also that there were multiple waves of inflation (6.2% @ 1969, 12.3% @ 1974, 13.3% @ 1979) + Fed tightening (9% @ 1970, 11% @ 1972, 13% @ 1972, 18% @ 1980, 19% @ 1981). These were effective but not persistent - in between inflation fell to 3.3% @ 1971 and 4.9% @ 1976. Even in very high-inflation years you had some months with virtually no inflation - for example July 1973 (0.1% MoM), March 1974 (0.2% MoM), July 1980 (0%).

History doesn't repeat itself, but it rhymes. IMHO this was caused by having an economy that's very tightly optimized for ZIRP & globalization; introducing a pandemic that killed a million Americans, took another ~4.5M out of the workforce, and closed borders; and adding on some geopolitical black swans like the Ukraine war. Now workers need to reallocate from speculative high-margin activities like tech startups back to fundamentals like growing food and hauling trucks, and that is unlikely to happen unless the wages for truck drivers in the future exceed those of software developers now. We'll get cycles in between as the Fed tightens and loosens and causes recessions, but we don't fix the root problem until average income is ~$200K/year.

[1] https://www.usinflationcalculator.com/inflation/consumer-pri...

[2] https://fred.stlouisfed.org/series/FEDFUNDS

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#142

Post by landemva » Tue, Dec 13, 2022, 9:37 PM UTC

Wowfunhappy wrote: post #7

josephcsible wrote: post #4

Remember that "declines" in this context just means that prices are going up slightly slower than they were before. It doesn't mean anything's getting any cheaper.

Yes, if things were actually getting cheaper that would be "deflation" and it would probably be bad.

Deflation is good for those who prudently saved. Deflation makes saving work better, rather than push everyone into speculation to outpace loss of purchasing power (inflation).

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#143

Post by dragonwriter » Tue, Dec 13, 2022, 9:38 PM UTC

josephcsible wrote: post #4

Remember that "declines" in this context just means that prices are going up slightly slower than they were before. It doesn't mean anything's getting any cheaper.

> Remember that “declines” in this context just means that prices are going up slightly slower than they were before.

Also remember that this is a 12-month trailing figure that’s been falling for several months because monthly inflation has been low since Jul (it was actually 0.0 in July, with seasonable adjustments, and below 0.4% [4.9% annualized] every month since, with the November figure 0.1% [1.2% anuualized.])

> It doesn’t mean anything’s getting any cheaper.

Actually, it is a result of lots of things getting cheaper: energy (all the major components, both commodities and services), used cars and trucks, transportation, and medical care services.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#144

Post by landemva » Tue, Dec 13, 2022, 9:40 PM UTC

ClumsyPilot wrote: post #106

runako wrote: post #69

Earlier quoted context omitted.

> delay the purchase of groceries This will obviously not mean skipping eating, but will manifest more as fewer "special" meals like steak or lobster or whatever. > a fridge, a new roof If you are a homeowner, you know that most equipment failures are a decision to either repair or replace. In a deflationary environment, owners will bias toward patching things as long as they can. (The opposite is true in an inflatio…

> owners will bias toward patching things as long as they can So if we live more sustainably, the economic system colapses? Is that a bug or a feature? I just had my landlord throw away the dishwasher because replacing the tiny pump was not worth the effort. Myfriend threw away a fridge because replacing a single part, the compressor, was not worth the trouble.

Replacing a fridge compressor has become a giant hassle in the US. The lines are sweated and you are required to capture the refrigerant.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#145

Post by dragonwriter » Tue, Dec 13, 2022, 9:46 PM UTC

algoatecorn wrote: post #121

philjohn wrote: post #80

Earlier quoted context omitted.

Seeing as oil is now around $70 a barrel, they can refill it for a profit.

Refill it with oil where from where?

Refilling it buying oil from the market, which they issued rules to do with the drawdown, with a specific price trigger which has just been reached.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#146

Post by 082349872349872 » Tue, Dec 13, 2022, 10:01 PM UTC

gumby wrote: post #73

geye1234 wrote: post #37

Earlier quoted context omitted.

Perhaps for businesses this may be true. It's hard to imagine for a consumer. I'm not going to delay the purchase of groceries, a fridge, a new roof or (if I'm feeling rich) a new car just because they may be 3% cheaper next year. I'm not saying this conventional wisdom is wrong, but it's not obviously right.

Actually, consumers very much do delay purchases, especially of big ticket items like white goods, cars, and houses in deflationary regimes, just as in periods of hyperinflation they do the opposite. This is easy to look up as there are many examples through history (especially of the latter — Brazil is an excellent and frightening example). Groceries, sure, but then as a consumer you are still impacted because suppl…

During Israeli hyperinflation grocery stores had a nice example of picking suitable data representations for write-heavy loads: they would price shelf items in "points", and a big board at the entrance to the store (updated ~daily) carried the current ratio between points and shekels.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#147

Post by javanissen » Tue, Dec 13, 2022, 10:07 PM UTC

landemva wrote: post #142

Wowfunhappy wrote: post #7

Earlier quoted context omitted.

Yes, if things were actually getting cheaper that would be "deflation" and it would probably be bad.

Deflation is good for those who prudently saved. Deflation makes saving work better, rather than push everyone into speculation to outpace loss of purchasing power (inflation).

Assuming that those savers put the vast majority of their money in deflation-resistant assets like cash, bonds, or gold, instead of stocks or real estate (including single-family homes); this assumes further that deflation doesn’t increase unemployment and harm business by disincentivizing marginal spending, which many believe to be the case.

I disagree that people have to speculate to keep up with inflation. Maybe this is true in the short term (although individual savers in America can purchase inflation-protected savings bonds in exchange for their capital being locked up for a year), but over terms of several years stock markets are incredibly durable in the face of even high inflation. Investing your ample savings in a portfolio of index funds and owning the house you occupy should keep you well ahead of inflation over your lifetime.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#148

Post by jjk166 » Tue, Dec 13, 2022, 10:27 PM UTC

listenallyall wrote: post #125

jjk166 wrote: post #115

Earlier quoted context omitted.

Conversely, if someone is tailgating you then tapping the breaks at 120 mph is much more dangerous than at low speeds, as they have less time to react. Likewise the sudden shock of going straight from inflation to deflation could be much worse than deflation after a long period of stagnancy, as not only do you suffer all the issues of deflation but you also have the delayed response of things adapting to the inflatio…

Who is the tailgater in this scenario?

The various entities in the economy who need to react to changes in the money supply - businesses, banks, consumers, governments, etc.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#149

Post by landemva » Tue, Dec 13, 2022, 10:39 PM UTC

javanissen wrote: post #147

landemva wrote: post #142

Earlier quoted context omitted.

Deflation is good for those who prudently saved. Deflation makes saving work better, rather than push everyone into speculation to outpace loss of purchasing power (inflation).

Assuming that those savers put the vast majority of their money in deflation-resistant assets like cash, bonds, or gold, instead of stocks or real estate (including single-family homes); this assumes further that deflation doesn’t increase unemployment and harm business by disincentivizing marginal spending, which many believe to be the case. I disagree that people have to speculate to keep up with inflation. Maybe t…

This is a privileged perspective, typical of the HN crowd. Good for you.

There is a segment in USA who are basically permanent renters and don't have the luxury of extra money to put in to stocks and bonds. They might "own" a car as their asset, and it rapidly loses value. If they have extra money in their checking account, the ex and child support enforcement go after it.

Re: US annual inflation declines to 7.1% in November vs. 7.3% expected

#150

Post by javanissen » Wed, Dec 14, 2022, 12:29 AM UTC

landemva wrote: post #149

javanissen wrote: post #147

Earlier quoted context omitted.

Assuming that those savers put the vast majority of their money in deflation-resistant assets like cash, bonds, or gold, instead of stocks or real estate (including single-family homes); this assumes further that deflation doesn’t increase unemployment and harm business by disincentivizing marginal spending, which many believe to be the case. I disagree that people have to speculate to keep up with inflation. Maybe t…

This is a privileged perspective, typical of the HN crowd. Good for you. There is a segment in USA who are basically permanent renters and don't have the luxury of extra money to put in to stocks and bonds. They might "own" a car as their asset, and it rapidly loses value. If they have extra money in their checking account, the ex and child support enforcement go after it.

Let me clarify.

I am privileged in many ways, and I agree that such a class exists and is growing. I’m in my twenties and almost everyone I know is a flat-broke renter.

I did not mean to imply that everyone can easily save and invest their way to wealth regardless of their economic situation - this is ludicrous and anyone suggesting otherwise is out of touch.

My clarified points are as follows:

1) Prudent savers, who by definition have extra money at the end of the month, are not better off due to deflation because the prudent thing to do with spare money is not to leave all of it in cash. Most non-cash non-fixed-income assets do terribly under deflationary conditions.

2) Homeowners, who are still a majority of American adults, definitely do not benefit from deflation. Homes are one of the assets that do terribly in deflation.

3) Many people, including me, believe that deflation drives up unemployment by chilling consumption. This is another argument why deflation is not good for savers - many of them lose the ability to save when their income evaporates.

4) Speculation is not necessarily to make any money left over keep up inflation in the long run. In the short run, outside of Series I bonds, good luck.

Part of our disagreement might be in the definition of the term “saver”. To me, this is someone with both the inclination and means to have a surplus each month. Others might include someone with the inclination who might not have the means. Among that group, some folks might be better off if their income is flat but their cost of living decreases as that allows a budget surplus.